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Monday, March 16, 2009

Jon Stewart is a comedian, not a media critic, but he voiced America's frustration with the financial system last week when he sparred with CNBC's Jim Cramer. Robert Reich is an economist who better summed up the essence of Stewart's populist rant in a word: "helpless."

Writing in Salon.com today, the former Clinton administration cabinet secretary is a frequent speaker at the Commonwealth Club of California. Reich spoke at the Club in January, saying that the federal stimulus bill needed to be much larger than the legislation that ultimately passed ($787 billion over two years). On his blog, Reich recommends that the Obama administration quickly draft another stimulus bill of roughly the same size.

He also believes the populist streak that is becoming more fervent across the nation as instances of financial impropriety increase is hindering the confidence of the American people and rendering them helpless.

If our very own Secretary of the Treasury [Timothy Geithner] doesn't even learn of the bonuses until months after AIG has decided to pay them, and cannot make stick his decision that they should not be paid, AIG is not even accountable to the government. That means AIG's executives -- using $170 billion of our money, so far -- are accountable to no one.

The possibility of this firestorm of populism possibly engulfing the Democratic-led Congress and White House may be the impetus for a story in today's New York Times in which top White House officials fear the backlash could make future bailouts more difficult to push through Congress.

Reich also makes an interesting point regarding AIG's financial priorities if it were forced into bankruptcy last fall, instead of being propped up by the government.

Had AIG gone into Chapter 11 bankruptcy or been liquidated, as it would have without government aid, no bonuses would ever be paid (they would have had a lower priority under bankruptcy law than AIG's debts to other creditors); indeed, AIG's executives would have long ago been on the street. And any mention of the word "talent" in the same sentence as "AIG" or "credit default swaps" would be laughable if laughing weren't already so expensive.

In the meantime, Geithner and economic adviser Larry Summers, among others in the administration, continue to say there is little the government can do to stop AIG employees from keeping their portion of the $165 million pie. And New York Attorney General Andrew Cuomo wants the names and job performance records of every AIG employee receiving the infamous bonuses. Whether such efforts at instilling confidence in the accountability of recipients of the bailouts works or not will likely play a big role in forming future attitudes of American citizens toward government response to the economic crisis.